Refer to Table 20-13. Consider a simple economy that produces only three products: tacos, earplugs, and toothbrushes. Use the information in the table to calculate the inflation rate for 2016, as measured by the consumer price index
What will be an ideal response?
Total expenditures for 2001 = (5 × $1.50 ) + (10 × $6.00 ) + (3 × $2.50 ) = $75.00.
Total expenditures for 2015 = (5 × $2.00 ) + (10 × $7.50 ) + (3 × $3.50 ) = $95.50.
Total expenditures for 2016 = (5 × $2.25 ) + (10 × $7.00 ) + (3 × $3.50 ) = $91.75.
The CPI for 2015= [($95.50/$75.00 ) × 100] = 127.33
The CPI for 2016 = [($91.75/$75.00 ) × 100] = 122.33.
So, the inflation rate for 2016 = [((122.33 ? 127.33 )/127.33 ) × 100 )] = ?3.9%.
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